In a notice issued earlier this month, Regions Bank, the trustee for the bonds, set a 10 a.m. Monday deadline for calling in all the outstanding bonds, an amount estimated at $88.3 million.

The notice was triggered when symphony officials drew a line in the sand and declared they would not renew a letter of credit with Bank of America, which backs the bonds.

“We continue to be in discussions with the orchestra,” said Shirley Norton of Bank of America, when asked if there were any new developments.

Earlier this month, Symphony CEO Alan Valentine said the symphony has enough cash on hand for operations for the “foreseeable future,” but he would not speculate on the organization’s longer-term picture.

He said earlier this month that the symphony needs a “comprehensive financial restructuring.”

According to the organization’s Form 990 tax filings, expenses exceeded revenue by $27.3 million between the fiscal years of 2009 and 2011.

An organization already faced with significant operating shortfalls as a result of unfavorable economic conditions, the symphony also is burdened with substantial payments on debt incurred from construction of the Schermerhorn, which opened in 2006, and the lingering financial impact of the May 2010 flood. The center was closed for repairs for eight months after that flood.

“We have people around the table looking for the best solution to maintain the longevity and sustainability of the symphony,” spokeswoman Laurie Davis said.

If the bonds are called without an agreement, experts say, it would probably trigger penalty payments that could be severe.

“Absent a negotiated agreement, you’re likely to see a bump up in points and then accelerated amortization,” said Peter Shapiro of New Jersey based SWAP Financial.

Conflict of interest?

In response to written questions, Davis disclosed that the strategy for dealing with the organization’s overwhelming debt has been led by a board member, Kevin Crumbo, and his firm, KraftCPAs.

In fact, Kraft and Crumbo — a turnaround and restructuring specialist — were working on the issue before Crumbo was named to the board last year.

“Bank of America required the symphony to hire a firm to advise on restructuring matters nearly two years ago as a condition to renewing the letter of credit which supports the bonds,” Davis wrote in an email response to questions.

Due in part to the relationship that resulted, Crumbo ultimately was invited to join the board, Davis said. Since Crumbo joined the board, Davis said, he has donated his time but the firm continues to bill for other services.

“The board has been fully informed at all times of the nature of the Kraft relationship,” Davis said in an email. “And, in fact, invited Kevin onto the board knowing the full scope of the relationship.”

She declined to disclose the terms of the contract. “KraftCPAs has been engaged in the normal course of business and applicable professional standards,” Davis wrote in the email.

A review of the orchestra’s most recent tax return does not show any payments to KraftCPAs. A new return is expected to be filed shortly.

Under the federal law governing nonprofits like the symphony, boards must disclose any business dealings with board members or related entities.

Ken Berger, president of Charity Watch, said that the relationship between Crumbo’s firm and the symphony, “could raise some red flags” because of his role on the board.

Even though Crumbo is not charging for his work, he is a partner in the firm, which is being paid by the symphony.

“Profit is profit,” Berger said. “There still is a potential for a conflict of interest.”

It is critical, Berger said, that Crumbo, as a board member, not vote on any matters relating to his accounting firm’s work for the orchestra. Davis said: “There have been no decisions voted on by the board, regarding Kraft recommendations, during Mr. Crumbo’s tenure on the board.”

“It is also important for the charity (to) be transparent about the process that was used to select the firm. Is it the best available? The process needs to be transparent and arms’ length. It needs to be clear that there is no conflict of interest whatsoever,” Berger said.

“The ideal situation is that you don’t get into these kind of arrangements.”

-Walter F. Roche Jr.
The Tennessean

Jessica Bliss contributed to this report. Walter F. Roche Jr. can be reached at 615-259-8086 or wroche@tennessean.com.